Suppose you are considering a project to make keyboards. The NINV is 135,000. Ea

Question

Suppose you are considering a project to make keyboards. The NINV is 135,000. Each keyboard will have a price of $14.35 and have a variable cost of $3.25. The project fixed cost will be $16,000 you think you will sell 3.500 per year. The project is 10 years And the firm has a required return of 7%. What us the financial break even on the project? Suppose you are considering a project to make keyboards. The NINV is 135,000. Each keyboard will have a price of $14.35 and have a variable cost of $3.25. The project fixed cost will be $16,000 you think you will sell 3.500 per year. The project is 10 years And the firm has a required return of 7%. What us the financial break even on the project?

Explanation / Answer

Break even point is the situation where, there will be no profit, no loss.

Equivalent Annual Cost(EAC) Can be Calculated by dividing Net Investment by 10 years annuity factors @7%

10 years annuity Factor @ 7% = 7.02358

EAC = 135000/7.02358 = 19220.96

Break Even Point = (EAC+Fixed Cost) / (Sale Price - Variable Cost)

= 19220.96+16000 / (14.35-3.25) = 3173

Break Even Point = 3,173 Units

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